Gold Update 3

Going on from our last Elliott Wave and Fibonacci analysis of the current
gold correction, we stated that gold had finished its first initial down move
but awaited an end to the ABC corrective pattern we believed was in action.

Reproducing the chart from our last article, we saw how gold had rallied into
this correction pattern and we were looking for the completion of the "B" wave
before commencing the next drop in the "C" wave. We still annotate the possibility
of this being the end of a wave 1 for now but stick to this being an ABC pattern
beginning the 12th December.

As it stood back then, the minor "abc" move from the 16th to the
20th was enough in theory to complete the large "B" wave. However,
as seasoned ellioticians will know, corrective patterns can consist of corrective
patterns themselves in a sometimes complex manner. In that light, we show the
most recent chart:

There are two things we have to say about this chart. Firstly, you will note
the "b" wave between the 21st and 22nd finishes below
the "5" wave of the 16th. Initially we thought this may have signified
the end of the correction, but waiting for a day or two proved otherwise. The
price action now suggests a pattern called an "irregular flat" where the "b" and "c" waves
overshoot the initial "a" wave rather than all being of roughly equal length
in a normal flat correction.

Looking at the numbers, wave "a" moved about $16 and "b" moved about $20 and
so far our suggested "c" wave has covered about $16. If this was an irregular
correction in operation, wave "c" should overshoot the wave "a" top of $509
to complete the overall correction.

Secondly, since we always like to have an alternate count, it could be that
move down to $489 on the 21st was a complete correction itself.
However, this requires the final "C" wave to be only 42% of the "A" wave from
the 12th December top. That would be moves of $47 and $20 respectively.
This is theoretically possible, but not a leading contender at this point unless
gold breaks back up to the $520 range. Elliott rules expect wave C to be at
least 61.8% of the length of wave A and normally the same length ($47).

Going back to our irregular flat, one source I read (see link)
suggested these Fibonacci ratios for such a pattern:

Fibonacci Ratios in
an Irregular Wave

Wave B = either 1.15 x
Wave A or 1.25 x Wave A

Wave C = either 1.62 x
Wave A or 2.62 x Wave A

As we said, the "a" wave was $16 and the "b" wave was $20, which gives a ratio
of 1.25, so we are right on target again with the Fibonacci ratios. The c/a
ratio of 1.62 or 2.62 suggests a final "c" top of $516 or $532. Here is the
30-minute zoom in of that multi-day correction pattern with annotations.

The (C) impulse wave appears to be coming to an end unless it becomes what
is known as an extended 5th wave where it stretches out that little
bit further. If the price drops much below $500 then we would consider the
whole correction beginning 16th December to be over, but we continue
to watch for further clues.

Admittedly, the Fibonacci targets of $516 and $532 both sound a bit high to
us at a current price of $506 this Friday, so do we trust our gut feelings
or what the numbers are saying? Well, as you may know, Gold can be quite an
emotional market for some, so for now we just sit back and see what happens
during and after the Christmas period.

Until then we wish our readers a happy festive period!

Roland Watson writes the investment newsletter The New Era Investor that
can be purchased for an annual subscription of $99. To view a sample copy of
the New Era Investor newsletter, please go to www.newerainvestor.com and
click on the "View Sample Issue Here" link to the right.